Book Partial Profits - Indraprastha Gas

There are few scrips which are fundamentally so strong that they have managed to hold their ground despite the market turmoil and it makes sense to recommend such counters. Indraprastha Gas is one such scrip we had recommended as part of our Choice Scrip column in our Issue No 2 dated January 5, 2009. The scrip was recommended at price of Rs 100. Since then IGL touched Rs 152.90 during a 52-week high, providing an appreciation of 52.90 per cent. At its CMP of Rs 134.75, it is still up by 34.75 per cent. The Sensex during the same period was up by 44 per cent. Clearly enough, IGL has performed almost in line with the Sensex.

There were some compelling reasons which made us recommend this counter to our readers. Indraprastha Gas (IGL), which is in the business of supplying compressed natural gas (CNG) and piped natural gas (PNG), enjoys monopoly status in Delhi till 2010 and hence it will remain the sole beneficiary till that time. That apart, the increasing conversion rate of vehicles to CNG in accordance to a ruling issued by the Supreme Court in 1998 has been building up the profit levels for the company.  However, IGL has come out with its Q4FY09 results, where its revenues increased by 20 per cent, but operating profits took a beating on account of 42.79 per cent increase in cost of sourcing gas from Rs 81 crore to Rs 115.7 crore. Besides, employee cost also increased by 53 per cent. All these impacted its operating margins by 830 basis points and net margins by 625 basis points. Hence, investors can book 50 per cent profits and hold balance 50 per cent for long term. This is because although the company has posted comparatively weak results, considering the monopoly status IGL has till 2010, the company's stock still has potential to give further upside in FY10. Besides, after booking partial profits, the average cost of buying also comes down by almost 50 per cent.